Dangote Refinery Must Be Protected at All Cost.
Despite being Africa’s largest oil producer, Nigeria has spent decades importing nearly all of its petroleum products due to the deteriorating state of its government-owned refineries in Kaduna, Port Harcourt, and Warri. These refineries have suffered from years of neglect, mismanagement, and corruption, resulting in the country spending over $28 billion annually on petroleum product imports.
According to audited financial statements released by the Nigerian National Petroleum Company (NNPC) Limited in 2020, the state-owned refineries recorded a combined loss of N406.62 billion in 2017 and 2018. Notably, the Kaduna Refinery and Petrochemical Company Limited did not generate any revenue in 2018, yet incurred a total cost of N64.68 billion, including N24.69 billion in direct costs and N39.99 billion in administrative expenses. Since 2010, these three refineries have absorbed about N12 trillion in turnaround maintenance (TAM) costs, with no significant improvements to show for it.
The failure of successive governments to revive these refineries has cost Nigeria dearly. This is why the commissioning of the 650,000 barrels per day (bpd) Dangote Refinery by former President Muhammadu Buhari in May last year was not only a relief for the public but was also seen as a transformative development for Nigeria’s oil industry.
Located in Ibeju-Lekki, Lagos, the Dangote Refinery began production in January, focusing initially on diesel, aviation fuel, and Liquefied Petroleum Gas (LPG). The company plans to introduce Premium Motor Spirit (PMS), commonly known as petrol, to the local market by August.
In April, Dangote significantly reduced the price of diesel from N1,200 per litre to N1,000 per litre. Prior to the company’s production, diesel prices in the local market ranged between N1,700 and N1,900 per litre. The price has since stabilized at N1,200 per litre.
“Dangote Petroleum Refinery has announced an unprecedented reduction in the price of diesel from N1,200 to N1,000 per litre. This significant price reduction is expected to positively impact all sectors of the economy and help reduce the high inflation rate in the country,” Dangote said in a statement.
However, challenges related to securing feedstock and ongoing disputes with regulatory authorities are hindering the company’s efforts to position Nigeria as a net exporter of petroleum products. Devakumar Edwin, Vice President of Oil & Gas at Dangote Industries Limited, recently asserted that International Oil Companies (IOCs) operating in Nigeria have consistently obstructed the refinery’s access to locally produced crude for its refining operations.
Edwin noted that when crude is offered to Dangote by the trading arms of these companies, it is often at a premium of $2-$4 per barrel above the official price set by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
His remarks followed a statement by NUPRC’s Chief Executive Officer, Gbenga Komolafe, who during an interview on Arise News TV, argued that it was incorrect to claim that IOCs were refusing to supply crude oil to domestic refiners. Komolafe emphasized that the Petroleum Industry Act (PIA) mandates a willing buyer-willing seller relationship.
In response, Edwin suggested that Komolafe may have been misquoted, hence the misunderstanding regarding the IOCs’ position.
“To clarify the facts, aside from the Nigerian National Petroleum Corporation Limited (NNPCL), we have only purchased crude directly from one other local producer, Sapetro. All other producers have referred us to their international trading arms. These trading arms are middlemen who operate abroad, profiting from crude produced and consumed in Nigeria. They are not subject to Nigerian laws and do not pay taxes in Nigeria on the margins they earn.
One particular IOC’s trading arm refused to sell to us directly, instead instructing us to find a middleman who would buy from them and then sell to us at a margin. After nine months of negotiations, we had to escalate the issue to NUPRC, which eventually helped to resolve the matter,” Edwin stated.
Dangote, Regulator Impasse
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has raised concerns about the quality of diesel produced by Dangote Refinery and other local refiners, citing high sulphur content. According to the regulator, the diesel from these refineries contains between 650 and 1,200 parts per million (ppm) of sulphur.
Addressing journalists in Abuja, NMDPRA’s Authority Chief Executive, Farouk Ahmed, stated that the diesel produced locally is of inferior quality compared to imported alternatives.
“In terms of quality, the current Automotive Gas Oil (AGO) produced by local refineries falls short of the West African standard of 50 ppm sulphur content. Diesel from Dangote Refinery and other major refineries, such as Walter Smith’s, contains between 650 and 1,200 ppm of sulphur. This makes the quality of their diesel significantly lower than that of imported products,” Ahmed explained.
He refuted claims that the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) was trying to obstruct Dangote Refinery’s operations due to a lack of crude oil supply from international oil companies (IOCs). He clarified that the refinery is still in the pre-commissioning stage and has not yet been licensed. The NMDPRA head also alleged that Dangote was pushing for a suspension of all petroleum product imports into the country, arguing that this would create a monopoly and jeopardize the nation’s energy security.
“There are widespread concerns about the national supply of petroleum products and the reports from some media outlets suggesting that we are attempting to undermine Dangote Refinery. This is not true. The refinery is still in its pre-commissioning phase and hasn’t been licensed yet,” said Ahmed. “They are currently about 45 percent complete. We cannot rely solely on one refinery to meet the nation’s needs, especially when Dangote is requesting a halt to all imports of petroleum products, including automotive gas oil (AGO) and jet fuel, and wants all marketers to source from the refinery.”
However, lab tests conducted before the leadership of the House of Representatives revealed that Dangote’s diesel had a sulfur content of 87.6 ppm, whereas imported diesel showed sulfur levels exceeding 1800 ppm and 2000 ppm, respectively.
Concerns for Nigeria
The President of the African Development Bank (AfDB), Akinwunmi Adesina, expressed concern over the situation with the refinery. Defending Dangote, he pointed out that monopolies often arise in markets with high barriers to entry or significant capital costs, and argued that there is no evidence suggesting Dangote is acting anti-competitively.
Adesina asserted that it would be inappropriate to ask Dangote Refinery to “compete” with petroleum product importers, stating that this does not constitute fair competition. He urged importers to establish local refineries and compete by refining products within Nigeria, describing this as genuine and justified competition.
“How many individuals or companies can build railways or refineries of the scale of Dangote’s? In a country that has been importing refined petroleum products for decades, the abnormal has become the norm. No smart investor would make a $19.5 billion investment only to have it undermined by importers,” Adesina said.
“Manufacturing is extremely costly and risky, especially in Nigeria’s challenging business and economic environment, which is plagued by policy uncertainties and reversals. The default approach of ‘just import it’ has become too easily rationalized and accepted. Competition is beneficial for everyone, but is Dangote Refinery anti-competitive? What evidence is there to support that? Has Dangote prevented any other company from establishing refineries? Why haven’t others done so over the years? Was Dangote responsible for holding them back?”
Adesina warned against short-sightedness and emphasized that disparaging Dangote sends the wrong message to the investment community.
“We must not undermine, disparage, or destroy local industries, especially one of this scale—a symbol of industrialization in Nigeria. It’s about more than just delivering the cheapest product to the market; it’s about domestic supply security, fostering globally competitive industries, maximizing local economic linkages, creating jobs, reducing foreign exchange expenses, and strengthening the Naira,” Adesina said in a statement seen by Majorwaves. “This criticism of Dangote is unwarranted and harmful to Nigeria. Who would want to invest in a country that undermines and disparages its largest investor? Investing is tough; pettiness is easy. Sadly, it signals that the reward for sacrificing for Nigeria is to be sacrificed.”
Femi Otedola, Executive Chairman of Geregu Power Plc, echoed these sentiments, stating that countries in the early stages of industrialization need visionary leaders like Aliko Dangote, President of Dangote Group, who has made significant contributions across various sectors of Nigeria’s economy.
Otedola highlighted Dangote’s impact in multiple sectors and called on the government to support him. He cited emerging markets like India, Vietnam, South Africa, Brazil, and China, where governments have supported local businesses to kickstart industrialization. He emphasized that backing visionaries like Dangote is crucial for Nigeria’s economic development.
“My brother, the Visionary, has built the world’s largest single-train refinery, not in Kano, but in Lagos State. He owns the second-largest sugar refinery in the world, also in Lagos State, and the largest cement factory in the world, not in Kano, but in Kogi State. Additionally, he has established one of the second-largest fertilizer plants globally, soon to surpass the biggest one in Qatar, also in Lagos State. Furthermore, he has built a fertilizer plant in Lagos that already exports worldwide. Aliko Dangote is a titan created by God for the benefit of mankind.
“Aliko Dangote is also the largest private-sector employer in the country, and his companies are among the top taxpayers. In fact, the Dangote Group often pays more in taxes than the top banks combined. Without him, we would still be importing cement. His contributions extend beyond industrial facilities to critical infrastructure, such as the Apapa Oshodi-Oworonshoki Express Road, Wharf Road, and the Obajana-Kabba Road,” Otedola said in a statement.
“In Nigeria, we have our own titans, and it is imperative that we recognize and support them. Aliko Dangote has shattered every boundary in global business and industry. His contributions are not just a testament to his brilliance but a beacon of what is possible when vision meets opportunity. Supporting local champions like Dangote is vital for our national development and economic independence. Let us continue to foster and support these visionaries who drive our nation’s progress.”
Peter Obi, the Labour Party (LP) presidential candidate in the 2023 general elections, has called for full support for the Dangote Refinery. He emphasized the importance of the Federal Government and its agencies recognizing the significant contributions of Dangote. Obi described Dangote not just as a businessman but as a national and African symbol of patriotism, commitment, and impactful entrepreneurship.
Obi urged government agencies to provide the necessary support to ensure the seamless operation of the Dangote Refinery and its related enterprises. “In the interest of Nigeria and its citizens, as well as Africans at large, I call on the Federal Government and its agencies to offer Dangote Industries, especially the refinery, all necessary support,” Obi stated.
He further highlighted that Dangote’s success is closely tied to the success of Nigeria and Africa. Conversely, the failure of Dangote would be a significant setback for both Nigeria and the continent. “The refinery has the potential to generate approximately $21 billion in annual revenue and create over 100,000 jobs, with numerous additional positive impacts on the economy,” Obi continued.
He emphasized the refinery’s strategic importance in addressing Nigeria’s fuel crisis, boosting foreign exchange earnings, and fostering economic growth, noting that it is too vital to fail and must not be hindered due to its crucial role in the nation’s welfare.
Similarly, Atiku Abubakar, the Peoples Democratic Party (PDP) presidential candidate in the last election, expressed concern over the ongoing conflicts. He warned that failing to resolve the issues could discourage the inflow of Foreign Direct Investment (FDI). “The conflict between Aliko Dangote and the NMDPRA is troubling. The Dangote Refinery, our nation’s largest private investment, is crucial for Nigeria’s energy and economic stability.
The 650,000 bpd refinery is essential for our energy needs and economic stability, and NNPCL’s investment underscores its importance. If we neglect this, we risk deterring vital foreign direct investment. No investor will trust a nation that undermines its key assets. Protecting significant investments like Dangote’s is essential to attract FDI and drive our economic growth,” Abubakar said in a statement.
Economist Criticizes NNPC and NUPRC
Economist Kelvin Emmanuel criticized the NNPC and NUPRC, rather than the IOCs, for Dangote’s inability to access sufficient feedstock locally. He explained that much of Nigeria’s crude oil has been tied up in crude-for-loan agreements, affecting domestic crude oil supply obligations to local refineries.
“I do not agree that the IOCs are to blame for the lack of feedstock. The blame lies with the NUPRC and NNPCL, given that much of Nigeria’s crude oil has been committed to crude oil swap agreements or used as collateral for loans. As a result, domestic crude oil supply obligations to refineries are not being met. The IOCs fulfill their domestic supply obligations and are not required to prioritize Dangote refinery’s feedstock needs,” Emmanuel said during an interview on Arise News.
He also noted that the NNPC has borrowed $12 billion through Afreximbank, using 250 million barrels of crude oil as collateral for loans between 2019 and 2024. “Between 2019 and 2024, NNPC borrowed $12 billion through Afrexim, using about 250 million barrels of crude oil as collateral,” he added.
However, energy expert Olabode Sowunmi, CEO of Cabtree Limited and Chairman of the Hydrogen and New Energy Committee of the Nigerian Gas Association, disagreed with Emmanuel. He argued that it is the responsibility of a refinery of Dangote’s capacity to ensure the sustainability of its supply chain. Sowunmi explained that, due to the crude-for-loan agreements, Nigeria is left with about 200,000 bpd out of the 1.3 million bpd produced in the country. Meeting Dangote’s crude oil demand would require breaking existing contracts, leading to litigation and damaging Nigeria’s reputation.
“When you look at Nigeria today, we produce about 1.25 million bpd. After accounting for JV agreements and production-sharing quotas, we are left with about 750,000 bpd. Previous governments made forward sales on crude oil, meaning that some of the crude loans taken, particularly those used for the 2023 elections, were based on future production. This situation leaves us with only about 200,000 barrels, which is crucial for our foreign exchange earnings and explains the forex shortage for the Naira,” Sowunmi said during an interview on Channels TV.
Related Posts
He emphasized that Dangote should have anticipated potential supply chain disruptions and looked for alternative sources of crude oil, even if it meant going abroad. “It’s the responsibility of Dangote to ensure the sustainability of his supply chain. If NNPC fails to deliver, he should have alternative plans. The reality is that our limited crude oil supply, which accounts for 75 percent of our forex, cannot be diverted to one company.”
As a long-term solution, Sowunmi suggested that Dangote should consider obtaining an exploration and production license to begin producing its own crude to supply the refinery.
